Tara Barboza: Tax Code Changes Affect Charitable Giving

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NORTH ADAMS — The end of the year often signals an increase in charitable giving but changes made by tax reform have important implications for your donations this year and going forward.

Changes to the tax code included an increase in the standard deduction to $12,000 for single people and $24,000 for married couples filing jointly. The vast majority of Americans will now take the standard deduction on their tax returns, meaning they won't itemize deductions such as charitable giving. Those who stop itemizing their deductions will not receive a specific tax benefit for charitable giving.

However, most people don't donate just to get the tax deduction. The top three self-reported reasons why high net worth individuals give are: 1) passion; 2) impact; and 3) a desire to give back.

To make an impact on both your chosen charity and your tax obligations, consider bunching your donations into larger amounts given every other year. This may increase the likelihood of being able to itemize deductions in alternate years.

If you choose to donate to a cause this December, whether by bunching or not, here are some important questions to ask:

Who Are They? Whether it is a Massachusetts organization or based elsewhere, be sure you know exactly what kinds of programs it has in place. Messages on TV or in an email that tug at the heart are commonplace. There's nothing wrong with that but doing a little homework will go a long way toward making sure you're making a good choice.

Can I See the Financial Statements? The group should be willing to share its Form 990, a tax return filed with the Internal Revenue Service, for the three most recent years. If the organization will not do so or does not have this information online, that should raise some red flags about the charity. If the organization is based in Massachusetts, you can search for their 990 and other helpful financial information on the attorney general's website, www.charities.ago.state.ma.us.

How Does the Charity Spend Its Money? Among other data, the Form 990 will show program expenses, or how the group spends the money it collects. The charity should be spending at least 75 percent of its budget on its charitable programs.

How Do I Know the Charity Makes a Difference? An organization may work diligently to effect change but that does not guarantee that its efforts are effective. If the organization provides after-school programs for inner-city children, for example, how many children are involved on a regular basis? If that number has risen in recent years, has the charity been able to adjust to the new demand? If the number has declined, can the charity explain why?

Tara Barboza, CPA, EA, is assistant professor of accounting at the Massachusetts College of Liberal Arts and a member of the Massachusetts Society of CPAs.


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